Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Sometimes one person’s streamlining is another’s chance to bulk up.
Klaus Rosenfeld says he has no interest in taking over Continental’s automotive business, which the German tyremaker plans to spin off next year. The boss of rival automotive parts maker Schaeffler has enough on his plate with the merger with Vitesco, the power train business that Continental spun off in 2021. But, with the billionaire Schaeffler family backing all of these companies, that could easily change.
Continental’s rationale for greater focus is simple: spinning off automotive will unlock a discount in a share price that in effect ascribes zero value to the auto business today. The more attractive fundamentals of a purer-play tyre business should mean a higher valuation for shares in the remaining rump. The only catch — and the reason for the discount in the first place — is the sorry state of Continental’s automotive business. Still, in the right shape, it could be a vehicle for the Schaeffler family to consolidate ownership across the automotive supply chain.
The business is well positioned: it is not overly exposed to the bits of the supply chain that are under threat from electrification, notes David Lesne of UBS. Instead, it specialises in brakes, in-car displays and control units — all of which have a place in electric vehicles. These also have little overlap with the Schaeffler company.
The problem is the losses that Continental has racked up in recent years: operating margins have recovered a bit but might hit just 2.6 per cent this year, according to Visible Alpha. That is about half of what France’s Forvia is expected to make from similar businesses this year. Continental is cutting costs: analysts expect its 2026 margin to be closer to 5 per cent.
If that comes off, its auto business would be worth just over €4bn, including half of current net debt and valued on a 2 times ebitda multiple in line with peers. The higher-rated tyre business, which will actually benefit from the shift to EVs, on perhaps 5 times 2026 ebitda would then be worth almost €20bn. That means a potential upside for current shareholders to the tune of 70 per cent.
The risks in getting to that destination explain the market’s caution. The outlook for the European car market is uncertain, both in terms of the number of cars sold and what share will be European made. Chinese interlopers such as BYD build about 60 per cent of their components in-house, much higher than the likes of Volkswagen, notes UBS. Electrification will mean that far fewer parts are needed too.
Continental’s split makes sense for the tyremaker. But for Europe’s automotive supply chain, it is further consolidation that ultimately will be needed.
andrew.whiffin@ft.com
